FAIRLAWN, Ohio—ContiTech A.G. has plenty of reasons to celebrate as the one-year anniversary of one of the company's largest acquisitions in history approaches.
Since the firm completed the purchase of the automotive air conditioning business of the Mobile Climate Systems division of Parker Hannifin Corp., ContiTech has expanded its global reach, attracted new customers and balanced its sales, in line with the company's growth strategy.
But according to Mike Eismann, head of research and development at ContiTech's Fluid Technology business unit, the company continues to face challenges as it revamps its operations in the changing air conditioning hose segment.
That's especially true in the Asia-Pacific region. While ContiTech's share of the market has more than doubled since the merger, Eismann said the firm still must overcome a "fractured" Asian market, where customers sacrifice quality and innovation for price.
"We have a lot of competitors we don't know," Eismann said. "This is one problem, and the other problem is the market is really price-driven. So price is everything most of the customers are interested in.
"ContiTech is focusing on technology and innovation, and we still have to find a way for these emerging markets to step out of our high technology and to find and define products for these markets that fit really in the market. So we somehow have to strip down our product to make it more cost-efficient, then hopefully we are back again, but it's a long way."
Eismann discussed his firm's acquisition after delivering the keynote address, "Air Conditioning Hose, what it will take to become a global market leader in supporting regional product needs," at the 2013 Hose Manufacturers Conference, held Aug. 27-28 in Fairlawn, Ohio.
In 2011, prior to the merger, 72 percent of ContiTech's air conditioning hose sales were in Europe, serving German auto makers such as Volkswagen, BMW and Mercedes-Benz. The NAFTA region—U.S., Canada, Mexico—accounted for 20 percent of ContiTech sales, while 8 percent of its business came in Asia.
Sales double in North America
Sales evened out after ContiTech assumed control of MSC's operations, which included three locations in the U.S. (Rochester Hills, Mich.; Collierville, Tenn.; and Trumann, Ark.), two in Mexico and one each in Germany, the Czech Republic, South Korea and China. Today, Eismann said, ContiTech's North American and Asian markets have more than doubled in business, with North America accounting for 41 percent and Asia 17 percent. Europe accounts for 41 percent of its business.
ContiTech has some growth opportunities within South Korea, Eismann said, and has some quotations it hope will result in new business.
"We hope that our new global footprint will help to get some Asian business as well—not local business with local manufacturers, but platform-wise," Eismann said.
"This is at least the way we're trying to go as we are not able to supply to these small companies. There's no way with our structure to support them, but we think we are able to support the big companies inside China or South Korea, in launching their big platforms, in getting our portion out of it. We have the CD4, which is a success, and we are working on other platforms at the moment."
The CD4 is the platform for the Ford Motor Co.'s air conditioning hose produced by ContiTech. The product is original equipment in the Ford Fusion in the U.S., and in the Ford Mondeo in Europe.
Eismann said he is particularly excited about ContiTech's surge in North America. As ContiTech became more of a global business, he said, company executives, especially Matthias Schoenberg, general manager of ContiTech Fluid Technology, pushed hard for expansion there. Before the acquisition, ContiTech's lone North American facility for the product was in Mexico City.
"If you look in the OEM world, you cannot ignore Ford, you cannot ignore General Motors, you cannot ignore Chrysler, and also some Japanese car manufactures, which are making big sales in the U.S.," Eismann said. "It was clear that we had to expand our business in Asia, but somehow it was clear we had to do something in NAFTA.
"In looking back, I think it was very good decision because ... for us as a German company with German brains, let's say, it's much easier to step in the U.S. market understanding all these things compared to Asia."
Universal business language
A year later, Eismann said while the European and American cultures are different, the regions speak the same universal business language.
"I believe working with U.S. colleagues or working with U.S. OEMs, we have the same technical language; we have the same way of negotiating, so all these areas are much more convenient for us, compared to Asia for instance," he said. "(In Asia), they don't care about your performance, they don't care about your strategy. They only ask, "What is the price? When can you go for the delivery?'
"The U.S. is working in a complete different way. They understand technical items. They want to go for innovation; they want to improve the things. The way of running the business is much more convenient for us."
Prior to the merger, ContiTech's Fluid Technology business unit posted around $1.7 billion in sales. Eismann said the merger, the terms of which remain undisclosed, made sense because it involved very little overlapping.
With R&D facilities in South Korea, the U.S. and Germany, ContiTech lets its team closest to the customer handle the process.
"So if we go for a GM project or Ford project on the global platform, the lead is clearly in Rochester, in the U.S., because this team has direct contact to the headquarters and knows everything," he said. "So they make all the design work, they steer all locations on the global base.
"If we go for a Daimler project, we do it the other way around. We (in Germany) do the lead work because we are close to the customer. ... All the other plants which will launch the project later on are part of the project team."
ContiTech secured three major customers from the acquisition: Ford, General Motors and Honda. The firm also increased its product range; today, it offers five hose families and supports almost every customer within the automotive world.
In addition, ContiTech is nearing completion of a $16.8 million factory in Kaluga, Russia, that will produce air conditioning and power steering lines. Eismann said that plant has secured business with several suppliers, including Renault and Nissan, and production is expected to begin there by the beginning of 2014.
Eismann emphasized that any success ContiTech realizes is directly the result of its employees, which number 15,000 worldwide.
"In the end you can do whatever you want, but you need the right people to make it a good job," he said. "All the figures and details you can read in our financial report, but this message is quite important: Without the people who work for you, you are nothing. Every worker is important. Without those people, there are no successes."